Ship-breaking activities at the once overworked
Gadani have come to a complete standstill at present

By Syed M. AslamApr 23 - 29, 2001

Gadani, an otherwise sleepy coastal stretch located
at comfortable distance from Karachi, shot to international prominence
in the early 1980s as the biggest ship-breaking yard anywhere in the
world not so long ago. Today, it is facing an uncertain future partly
because of substantial increase in the international prices of ship
scrap and partly due to high import duty.

There are many who feel that excessive taxation is
cutting the very supply of oxygen to the once thriving ship-breaking
industry no differently than the proverbial killing of goose which
laid the golden egg. While Gadani withers, the other countries of the
region, like India and Bangladesh, have designs to replace Gadani with
their own substitutes if their alacrity to lower import duty on ship
scrap is any indication. The slowing down in the ship-breaking
industry is costing the national economy much more than the lost taxes
as hundreds of steel re-rolling and re-melting mills owe their very
existence to the ship-breaking industry.

According to Chawdhary Abdul
Majeed, the chairman
of Pakistan Ship-Breaking Association, ship-breaking activities at the
once overworked Gadani have come to a complete standstill at present.
There is not a single ship to scrap and the collective ship-breaking
during last 10 months have fallen to a low of 160,000 tonnes compared
to a million tonnes scrap produced at the yard during its peak
productive years in the early 1980s.

The drastic decline in the output has not happened
overnight. It has declined gradually since late 1980s: From one
million tonnes a year to 800,000 tonnes, to 600,000 tonnes and finally
to the drastic low of today.

Hundreds of steel re-rolling and re-melting mills
in Pakistan either owes their very existence or depends heavily on the
ship-breaking industry for the supply of ship plates. The small
re-rolling mills are worst hit by the non-availability of ship scrap
as they entirely depends on ship plate compared to the bigger ones
which can afford to use a comparatively more expensive iron billet of
the Pakistan Steel. The small re-melting mills are facing a similar
situation unlike the big counterparts which can afford to use iron
ingot.

That explains the closure of tens of steel
re-rolling mills in Karachi during last many years. The chairman of
Pakistan Steel Re-Rolling Mills Association, Abu Obaida Farooqui told
that numerous small mills have been closed in Karachi over the years
and some medium and big ones could have been closed if the demand had
not been low, primarily due to slump in the construction industry.

The non-availability of raw material, ship plate,
has forced the existing re-rolling mills to switchover to iron billet
from the Pakistan Steel. This shift on the part of the re-rolling
mills is resulted in increase demand for the Pakistan Steel's billet,
the price of which has registered a substantial increase of 16 per
cent in the last six months — from Rs 16,000 per tonne to Rs 18,500
per tonne.

The idling of the ship-breaking industry have
forced the steel re-rolling and re-melting mills, particularly the big
ones, to replace comparatively less costly ship plate by a more
expensive Pakistan Steel billet. While the slump in the construction
industry has somewhat kept the price increases at bay at present, the
question is what would happen when the construction activities pick
up. The time to act is now to save the ship-breaking industry from a
total collapse or else the situation would only become much worse in
the years to come.

The excessive duty on the import of ships for scrap
in addition to inconsistent policies have not only dealt a fatal blow
to the ship-breaking activity but is also bound to increase the
production costs which would take a heavy toll on the construction
industry, as and when it comes out of the current slump. The situation
would no more be under control then.

Today, India and Bangladesh are all poised to
replace Pakistan as the ship-breaking giant which it once was.
Tracking back the history of the Pakistani ship breaking industry one
witnesses many ups and downs. The Industry was at its peak during the
early 1980s and witnessed a slump in the late 1980s. It was revived in
the early 1990s due primarily to the slump in prices of ships for
demolition in the international market.

Today the situation is worsened by the fact that
less ships available for demolition in the international market thus
fuelling an increase in the demand. The demand for ship scrap thus far
surpasses the supply meaning that ship breakers have to pay a premium
price to bring a ship at Gaddani. Slapping high duty on the import of
ships for breaking purposes in such a scenario can hardly be termed as
wise. As is, the ship breaking, a highly energy consuming industry by
its very nature, today has to absorb the drastic increases in
electricity and gas tariffs like everybody else. The high import duty
is on ship scrap makes all the less sense as ship scrap is basically
classified as a secondary raw material.

Meanwhile, Majeed told PAGE, that his
association would brief the Finance Minister Shaukat Aziz about the
concerns and problems faced by the ship-breaking industry and its
possible revival.